What are 4 Effective Techniques for Building an Emergency Fund?
Like many adults in the United States, you may have some money spared for your monthly expenses, such as food, utilities, internet, transportation, and housing. But what if you’re suddenly struck with an unexpected bill? Do you have the funds available to cover an unforeseen cost? Unfortunately, several people aren’t prepared for a financial emergency, with nearly 4 in 10 Americans unable to pay for a $400 expense. If you feel like you’re in the same boat, you can remedy that issue by building an emergency fund that can help you manage a sudden bill or expense.
Although the best place to save money for emergencies is through a high-yield savings account, there are options you can consider to accomplish this goal. You can deposit funds into a money market account, a certificate of deposit (CD), a Roth IRA account, or a traditional checking account with your bank or credit union. Each selection has its own benefits to contemplate, which is why you need to do some research before you start putting money into a savings vehicle. Once you find your appropriate location to save cash, you will have to determine the right amount you can deposit every month in your account.
Of course, everyone has a different amount they will place into their emergency fund. Many financial experts recommend saving three to six months’ worth of expenses, but the total you will spare will be determined by the amount you can afford. Make sure you review your income and your finances to see how much money you can set aside for an emergency fund. Even if you’re placing $50 every month in your savings, you will eventually save plenty of money that can let you handle emergencies without any problems.
Take a look at 4 proven strategies for building an emergency fund that will prepare you for any financial situation:
1.Follow a Strict Budget Plan
To have an emergency fund, you have to follow a tightly controlled budgeting system that will help you save money in your account. If you don’t have a budget ready, you are more likely to spend cash on things that you don’t need when you could have used those funds to prepare yourself for an urgent situation.
Thankfully, there are various budgeting methods that are effective in letting you save money, including the following popular options:
- The 50/30/20 Rule
- “Pay Yourself First” Strategy
- The Envelope Budget Plan
- Zero-Based Budgeting Technique
- The “No Budget” System
Regardless of the strategy you opt for, the key is that you will be able to increase your emergency fund over time if you remain consistent with your plan. However, you can only save money if you avoid unnecessary spending and concentrate on the work to be done. Don’t spend your cash drinking every weekend, on subscriptions you won’t use, or applying for high-interest credit cards that will deplete your funds. By following that simple advice, you will effectively save for any potential emergency, such as a car accident, unemployment, house repairs, or medical bills.
It may help to download a budgeting app on your smartphone to assist with tracking your savings. This way, you can control your expenses, know when your bills are due, and even take your budget with you! Search for various apps in the market and choose the one that is most suitable for you. Or, consult a financial advisor for recommendations on which application one should use to develop an emergency fund.
2.Sell Any Items You Don’t Need
Keeping tabs on your spending is a major strategy that will help you save cash for monetary issues. However, if you want to deposit more money into your savings to rapidly boost your emergency fund, you can consider selling unwanted items to meet that objective! Look through your closet and donate unnecessary clothing, sell old electronics you aren’t using, or put some furniture on sale to earn extra funds. You can decide to create a garage sale to attract potential buyers, but it’s best to take an easier approach, like selling through an online marketplace. With websites like eBay, Poshmark, and Craigslist, you can spread the word about your items to a wider network than you would selling in your neighborhood.
Do you consider yourself to be a crafty person? If so, you can sell your handmade products through Amazon or Etsy to earn more money for your emergency fund. Calculate the costs associated with crafting your item plus the time it took to make it to come up with its market price. Make sure you take quality pictures of your product and write appealing descriptions to increase your chances of making a sale!
3.Set Up Automatic Transfers to Your Savings
It’s perfectly normal to forget an assignment when juggling multiple tasks. But when it comes to building an emergency fund, that kind of forgetfulness can really hurt you later on if you don’t have the money set aside for unexpected expenses.
To avoid this, many experts suggest automating your savings so you never miss a deposit. This approach not only helps you stay consistent but also makes it easier to avoid the temptation of spending that money on impulse purchases. By setting up automatic transfers, you’re essentially forcing yourself to be more careful with your spending since there’s less money sitting in your checking account. However, it’s crucial to set reminders for each transaction so you don’t mistakenly think you have more cash available than you actually do.
4.Take Advantage of Money Bonuses
There might have been several instances in your life where you received money unexpectedly. It could have been in the form of a gift, the profits of a home sale, or a severance payment from a previous employer. If you receive a significant amount of money you didn’t expect to obtain in the future, consider putting an amount towards your emergency fund. It won’t be the quickest way to boost your savings, but you can rest assured in knowing that you’ll have more money ready for a financial predicament.
The Bottom Line ⎼⎼ There are More Than 4 Proven Strategies for Building an Emergency Fund
Many people use loans like personal loans or a car title loan to deal with unexpected expenses. While those are useful options to get yourself back on your feet, it’s still important to have an emergency fund set to avoid having to add more to your debt! You can use the aforementioned strategies to build your savings or find more techniques online to accomplish your objective. If you need tips on making a proper emergency fund, you can speak with a financial advisor today for guidance on the best methods to grow your funding.
